The U.S. stock markets are put off by discouraging valuations while Europe is under the burden of ageing economies. Europe is also struggling to cope with the migration crisis and repeated terrorist attacks. In this world where returns are hard to come by, Asia-Pacific should figure in the list of investable regions.
Investing in funds exposed to such a region will help balance your portfolio across developed, emerging and frontier markets. This diversification across a heterogeneous spread of economies will eventually protect one's moolah in today's tumultuous economic scenario. Moreover, the Asia Development Bank (ADB) reported that growth in Asia is expected to be more than 5% this year. This is a strikingly positive outlook, given that global growth is averaging slightly more than 3% a year. Growth in the pacific sub region is also anticipated to be around 3.8% this year.
Among the major economies, China showed signs of improvement, while India is likely to drive growth in Asia. Bank of Japan's Governor Haruhiko Kuroda also assured investors that Japan's economy is on a moderate recovery trend despite coming under substantial pressure from a rising yen against the U.S. dollar.
China Resilient, India to Bolster Growth
China's factory indicators point to a pickup in the economy supported by greater stability in the yuan and a rise in its stock markets. After eight consecutive months of decline, China's official manufacturing PMI came in at 50.2 in March. Any reading above 50 indicates expansion. A separate indicator, the private Caixin manufacturing PMI, rose to 49.7 in March from 48.0 in February. In spite of being below 50, it turned out to be the index's highest reading in the past 13 months.
China's service sector also expanded last month, which bodes well for a country striving to transform into a consumer-driven economy in the long term. China's official non-manufacturing PMI rose to 53.8 in March from 52.7 in February. Consumer sentiment too rose sharply in March. The Westpac MNI China Consumer Sentiment Indicator jumped 6.1% to 118.1 in March, its highest level since Sep 2015.
Meanwhile, India's economic growth is expected to be 7.4% this year, according to the ADB. Even though the growth rate has been slashed, the pace is still healthy when compared to other economies of the world. ADB further added that with more foreign direct investment in the economy along with strong corporate balance sheets, the nation will be able to maintain the growth level. With more reforms in the way, the country is expected to grow much stronger.
RBI Governor Raghuram Rajan had said that the "Indian economy is currently being viewed as a beacon of stability because of the steady disinflation, a modest current account deficit and commitment to fiscal rectitude."
How Did Asia-Pacific Mutual Funds Fare?
Among the major funds that are exposed to the Asia-Pacific region, most of them have fared exceedingly well in the last three months. During this span, funds such as Columbia Pacific/Asia A (MUTF:CASAX), Fidelity Pacific Basin (MUTF:FPBFX), Matthews Asia Dividend Investor (MUTF:MAPIX), Matthews Asia Growth Investor (MUTF:MPACX), Invesco Pacific Growth A (MUTF:TGRAX) and Wells Fargo International Value A (MUTF:WFFAX) gained 4.9%, 5.8%, 7.5%, 5.1%, 3.7% and 2.1%, respectively.
Standard deviation of all these funds for the one-year period ending on March 31, 2016, also turned out to be less than the MSCI AC Asia Pacific Index's standard deviation of 17.8%. There is no guarantee that even the most well-managed fund will give steady returns. However, these funds showing low standard deviation indicate a long track record of consistent returns.
4 Asia-Pacific Mutual Funds to Buy
As mentioned above, just as the major economies in the Asia-Pacific region are showing signs of stability, the foremost funds are also giving healthy and consistent returns. Hence, investment in mutual funds that focus on the Asia-Pacific region can be a good choice. This corner of the world has some of the world's most varied and economically vibrant countries. As a result, you can balance out your portfolio by investing across developed and emerging financial markets in the Asia-Pacific region.
For now, we have selected 4 Asia-Pacific mutual funds that have given positive 3-year annualized returns, carry a low expense ratio, have minimum initial investment within $5000 and possess a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy).
T. Rowe Price New Asia (MUTF:PRASX) normally invests a large portion of its net assets in Asian companies (excluding Japanese companies). PRASX's 3-year annualized return is 0.6%. Annual expense ratio of 0.94% is lower than the category average of 1.50%. PRASX has a Zacks Mutual Fund Rank #2.
Matthews Asia Dividend Investor seeks to achieve its investment objective by investing the majority of its net assets in dividend-paying equity securities of companies located in Asia. MAPIX's 3-year annualized return is 3.3%. Annual expense ratio of 1.05% is lower than the category average of 1.34%. MAPIX has a Zacks Mutual Fund Rank #2.
Fidelity Pacific Basin invests a major portion of its assets in securities of Pacific Basin issuers and other investments that are tied economically to the Pacific Basin. FPBFX's 3-year annualized return is 6.8%. Annual expense ratio of 1.17% is lower than the category average of 1.34%. FPBFX has a Zacks Mutual Fund Rank #1.
Columbia Pacific/Asia I (MUTF:CPCIX) invests a major portion of its net assets in equity securities of companies located in Asia and the Pacific Basin, which includes India. CPCIX's 3-year annualized return is 2.6%. Annual expense ratio of 1.04% is lower than the category average of 1.34%. CPCIX has a Zacks Mutual Fund Rank #2.